China and the United States are leading the way toward a 3.5 percent surge in world economic growth expected this year, the United Nations said.

After setbacks caused by the SARS crisis and the war on Iraq, national economies gathered steam in the second half of 2003 and that trend will continue in 2004, it said in an annual report.

"The world economy is gaining momentum," it said. "The global economic recovery is being driven mainly by the United States but increasing contributions from a number of other economies are becoming evident."

In particular the report cited "the rapid rising weight of China in the world economy and its role in the present recovery."

But Jose Antonio Ocampo, the UN Undersecretary General for Economic Affairs, warned governments not to hike interest rates or take other steps that might put on the brakes until the gains have settled in.

"The recovery still depends on low interest rates and expansionary fiscal measures," he said.

After less than 2 percent growth for more than two years, the report said growth is expected to swell to 3.5 percent this year while world trade should go up 7.5 percent -- well over the 4.7 boost in 2003.

Other factors include a "stronger than anticipated" turnaround in Japan, an overall reduction in the troubles of Latin America and brightening hopes for the continent of Africa, it said.

But the report -- which came out as Japan announced a 33.8 percent jump in its current account surplus -- underlined that the huge US deficit and parallel surpluses elsewhere posed a "serious threat" to stability.

How the mismatch is resolved "will have profound implications for the future stability, efficiency and equity of the world economy," it said. "The imbalances are expected to widen further in 2004."

The report forecasts that powerhouse China will see an 8.5 percent jump in output this year along with 6.25 percent in East Asia and 6 percent in the Baltic.

The United States will lead the developed world with 4 percent growth, it said.

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